Instead of searching for a “new shiny thing”, pension funds should focus on their current portfolios when addressing nature and biodiversity concerns, urged David Russell, chair of Transition Pathway Initiative (TPI).
Speaking at the Pensions and Lifetime Savings Association’s (PLSA) investment conference this week, Russell said there is a tendency for the pensions sector to “come up with a bright shiny new thing to invest in” and he believes that nature and biodiversity funds will be the next thing.
He said these assets will have an important role to play in how the sector addresses the loss of biodiversity issue but urged that the sector should not forget about “the other 98% of assets in your portfolio, which are also having nature impacts”.
He pointed out that, as asset owners, pension funds are allocating across all different types of asset classes and are exposed to nature impacts across their equity, private equity, credit, private debt or real asset portfolios.
“They need to be managed as well. Let’s not focus on the new shiny things that we are being sold and focus on how asset managers are dealing with the other stuff in the portfolio,” he said.
Faith Ward, chief responsible investment officer at Brunel Pension Partnership, agreed with Russell, noting some commonalities across asset classes such as assessing risk, setting targets, and having an implementation plan.
“The detail of that will obviously vary by different asset classes, perhaps around timelines. But there is also some commonality in making sure we are covering all of those bases,” she added.
Ward said that on the listed assets side, Brunel started to analyse risk opportunities in real assets using the S&P Environemnt 1 tool, which helped the investment pool sketch its biodiversity footprint.
“We have thousands of assets, so where do we start? Which companies are having the biggest impact? Which of the companies are most vulnerable from the biodiversity loss?,” she asked.
“Having a list of companies that you own, and having a list of top 10 that are having the highest impact and top 10 that are most vulnerable, that’s a starting point for a conversation,” she continued.
Ward pointed out that a biodiversity footprint goes further than that and shows different impacts of these assets. “We often complain about the lack of data, and there is a long way to go for data in biodiversity, but there are some really good tools out there. They may be imperfect, but they’re a really good start.”
She encouraged the industry to sign up to various initiatives such as Nature Action 100, Spring or United Nations’ Principles for Responsible Investment.
She said: “You don’t have to do huge amounts. You can just sign up and support those who are leading that engagement on your behalf.”
Stewardship
Maria Nazarova-Doyle, global head of sustainable investment at IFM Investors, said that on the public markets side, in terms of stewardship, there is a number of things investors can do – such as write letters to companies, meet with executive teams and board, vote in annual general meetings. She added that IFM has seen “amazing results happen in stewardship” as a result of such actions.
But ultimately, she said, investors can “ask companies to do the right thing but, unfortunately, sometimes they don’t”, noting that in private markets “when you actually own the company, or a substantial chunk of it, you can do it yourself”.
Nazarova-Doyle said: “Stewardship is about getting stuff done. Do you want a diverse board? Go and appoint diverse directors. Do you want a good quality transition plan? Help develop guidelines and help develop the transition plan and put it in place. If we want better disclosures and better data from our assets, then we need to help them deliver data systems and develop data systems.”
Nazarova-Doyle said its about managing those assets and working directly with them. “It’s a collaborative effort between asset owners, asset managers and actual assets.”
Read the digital edition of IPE’s latest magazine
No comments yet